Question

You are given the following information for Smashville, Inc.

Cost of goods sold:	$	204,000
Investment income:	$	2,000
Net sales:	$	369,000
Operating expense:	$	80,000
Interest expense:	$	7,400
Dividends:	$	10,000
Tax rate:		40	%

Current liabilities:	$	16,000
Cash:	$	21,000
Long-term debt:	$	28,000
Other assets:	$	36,000
Fixed assets:	$	163,000
Other liabilities:	$	5,000
Investments:	$	40,000
Operating assets:	$	35,000

Calculate the gross margin, the operating margin, return on assets, and return on equity. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

Net sales	369000
(-) Cost of goods sold	204000
Gross profit	165000
(-) Operating expense	80000
Operating income	85000
(+) Investment income	2000
(-) Interest expense	7400
Earnings before tax	79600
(-) Tax @ 40%	31840
Net income	47760

Fixed assets	163000
Cash	21000
Other assets	36000
Investment	40000
Operating assets	35000
Total assets	295000

Total assets	295000
(-) Current liabilities	16000
(-) Long term debt	28000
(-) Other liabilities	5000
Total equity	246000

Gross margin = Gross profit / Net sales = 165000 / 369000	44.72%
Operating margin = Operating income / Net sales = 85000 / 369000	23.04%
Return on assets = Net income / Total assets = 47760 / 295000	16.19%
Return on equity = Net income / Total equity = 47760 / 246000	19.41%